EMMA: A Stock with Upside Potential

By Brad Sorensen, CFA

OTC:EMMA

READ THE FULL EMMA RESEARCH REPORT

Emmaus Life Sciences, Inc. EMMA is expanding the reach of Endari, its treatment for sickle cell disease, while also pursuing other treatments to add to its portfolio. The company had shown the ability of bringing a treatment to commercialization and we believe the market is not fully recognizing the potential Emmaus has to further expand the company's revenues.

Shares of Emmaus Life Sciences have suffered and we believe the company is undervalued as an investment and that investors are neglecting to give the company credit for the existing product and growth opportunities, while also failing to recognize the pipeline potential we believe exists.

We are looking forward to seeing 2Q results and receiving updates on cash on hand, sales of Endari, new regions the business is expanding into, as well as updates on the pipeline. We will be looking to see how the telehealth line is progressing and helping to expand the Endari market. Endari, the company's sickle cell treatment, is commercialized and bringing in revenue and the company is expanding to other global regions, expanding an already large potential market which is estimated to be in the 20-25 million people worldwide range.

Additionally, the company continues to pursue approval for Endari to treat Diverticulosis, which is estimated to be an $8-20 billion market in the US and up to $35 billion in the EU. The company is hoping to gain approval for Endari for Diverticulosis as early as 2024.

Endari

There are no official cures for sickle cell disease, although there have been reported cases, by the CDC, of stem cell transplants being used to "cure" sickle cell. This potential cure is an exciting new potential option but will likely not be appropriate for many sickle cell victims. The risks that come along with stem cell transplants, according to the CDC, including life-threatening illness or death and it can be quite difficult to find a matching donor. For most sickle cell sufferers, being able to manage and control symptoms would likely be a much preferable, and more readily available, option. And that's what Endari, the therapy for treatment of sickle cell disease created by Emmaus, can provide.

Endari has been proven to reduce complications of sickle cell disease in adults and children 5 years and older and gained the orphan drug designation from the FDA, which is reserved for those drugs and therapies targeted at conditions affecting fewer than 200,000 Americans. This designation provides the company that receives it with the possibility of receiving tax credits for qualified clinical trials, an exemption from user fees, and, most importantly for Emmaus at this point, 7 years of market exclusivity after approval of the drug or therapy. The effectiveness of Endari in the fight against sickle cell disease is demonstrated by the results from recent clinical studies, which included 230 patients with sickle cell anemia or sickle thalassemia. Importantly, prior to the study, all 230 patients had at least two painful crises within 12 months of entering the trial. Among the encouraging results:

- Endari was shown to lower the frequency of sickle cell crises by 45%--annualized.

- Endari was shown to lower the frequency of hospitalizations by 33%.

- Cumulative days spent in the hospital by those on Endari were reduced by 41%.

- The time to the first sickle cell crisis in patients was delayed by 30 days.

- There was a reduced occurrence of acute chest syndrome (ACS). ACS is an acute complication of sickle cell disease and a major cause of morbidity and mortality. Once acquired, immediate intervention is required—regardless of age.

- Analysis by the company indicates that patients requiring blood transfusions and receiving Endari required about 43% fewer units of red blood cells.

It can seem a bit heartless to look at the financial benefits of a treatment like Endari when quality of life issues are involved, but it is the financial picture that helps motivate further treatments such as Endari. As seen above, patients that take Endari have fewer hospitalization days, resulting in lower costs to patients and their insurance companies. According to a study in the American Journal of Hematology (March 2009, Kauf, Coates, Huazhi, Mody-Patel, Hartzema), the potential savings on treatment costs could reach more than $2 billion annually in the US alone.

Endari—Diverticulosis

The amino acid L-glutamine that makes up Endari has also shown promise in combating other conditions. The most promising development involving Endari beyond sickle cell disease is in the treatment of diverticulosis. Diverticulosis is the formation of balloon-like sacs (diverticula) in the large intestine.

In the US, 40% of 60-year-olds and 70% of 80-year-olds are estimated to have diverticulosis. And of that number, 10-20% will develop into diverticulitis, resulting in pain, nausea, vomiting, constipation, diarrhea, fever, and leukocytosis. Emmaus theorizes that L-glutamine may rejuvenate the mucosa membrane of the large intestine, which support muscle cells, including those surrounding the intestine-helping to prevent diverticula formation. Tests on this theory are in the beginning stages but early results are positive with two initial patients showing a 100% and 50% reduction in the number of diverticula over 6 months. Emmaus estimates the market for this type of treatment to reach over $8 billion in the US and up to $35 billion worldwide.

We believe in the prospects of Emmaus to expand the use rate of Endari but acknowledge that there are uncertainties surrounding the growth rates and approvals for the expansion of the uses of Endari. Given these issues and the factors above, investors considering EMMA for their portfolio should recognize that the risk level is elevated as the future cash flows are certainly not assured. But we believe there are solid prospects and good odds for success as we've laid out and believe EMMA is worth a look at the current levels for investors with a higher risk tolerance.

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